Forget the nest egg, savers expect to be in hock for $25K at retirement
May 6, 2013 by Darla Mercado
Investors are facing yet another obstacle on their way to a safe and happy retirement: big loads of debt.
Mortgages, credit card balances, and auto and educational loans are creating a drag on pre-retirees’ retirement savings, and things have only worsened since the 2008 recession, according to a recent survey by Securian Financial Group. The firm polled a total of 1,021 people between 50 and 75 to get a sense of their debt levels and debt’s influence on retirement.
This year, 67% of 495 pre-retirees polled said they expect to carry mortgage debt into retirement. Only 59% of the 526 retirees in the survey actually had that debt when they stopped working. The finding suggests that these days, people are pessimistic about their debt loads.
By comparison, when times were better in 2007, only 30% of the pre-retirees predicted they would carry a mortgage into retirement. That year, 53% of the retirees ended up having a mortgage in retirement.
The difference in expected debt loads, versus the reality, suggests that pre-retirees in 2007 were optimistic about their ability to retire their mortgage debt in retirement. These days, people are less sanguine because the recession and falling home values of the last few years have taken their toll, noted Michelle Hall, manager of market research at Securian.
“It’s not a sunnier future now, but [retirees and pre-retirees] are more realistic,” she said. “People really believed that they’d have a big payout from their homes and it didn’t pan out.”
Fifty-six percent of the pre-retirees expect to carry at least $25,000 in debt into retirement. Nearly one in four of the pre-retirees also expect that their debts will be “much more” than the savings and investments they’ve accumulated.
In fact, those derailed by mortgage debt and the depreciation in the housing market run the risk of being unable to retire in the first place.
“They’re going to outlive their assets, most likely,” Ms. Hall said.
One bright spot is that retirees overall have been doing a decent job of closing out their tabs: In 2007, 71% of polled retirees had debt when they retired. This year, only 49% of them did. Mortgages and credit card balances were among the debts most of these retirees continued to retain, with 38% of them carrying a total debt load of at least $50,000.
There’s room for advisers to step in and mitigate the situation, as inevitably, clients will have to have to pay off their debts. Only about 26% of the participating retirees had spoken with an adviser to set up a retirement income strategy, and of that number, 57% entered retirement debt-free.
“Debt management could also be part how advisers help,” Ms. Hall said. “When you look at how many people have credit card debt and other debt on the sidelines, that all needs to be part of the plan.”
